Flood Re sets out plan for its own demise

Few organisations set out a plan for their own demise before they have even started operating. But that is exactly what Flood Re did on Wednesday.

The body — set up by government and the insurance industry to reduce the cost of cover in flood-prone areas of the UK — will open for business in April and is only intended to last until 2039.

Part of its mandate is to plan for a market that does not need the intervention of a special body to make prices affordable.

“This transition plan is important because it is the first time we have been clear about what the market should look like when we end in 2039,” said Brendan McCafferty, chief executive of Flood Re.

From April, Flood Re will start taking on the flood risk for properties that insurers deem to be vulnerable. The body will be funded by a £180m levy on the industry as a whole and an additional fee for each property that insurers put into the scheme.

Before the creation of Flood Re, insurance for many households in flood prone areas was either difficult to obtain or extremely expensive. Excess levels for some householders can run into tens of thousands of pounds.

The aim of Wednesday’s plan is to create a market in which insurance prices properly reflect risks yet at the same time are affordable and widely available. “The excess is very much part of the equation about how we assess affordability,” said Mr McCafferty, adding that Flood Re intends to create affordability indices to track pricing.

Flood Re casts its net widely when it comes to making this market happen. The organisation will collect data on the extent and costs of flood risks but it also calls for action elsewhere in using that data. For example, it wants the government and local authorities to use it to better understand the effectiveness of flood defences.

Flood Re also wants insurers and householders to work together to help to bring the costs of claims down. Wednesday’s report notes that few households in flood prone areas have taken action to either reduce the risk of flooding or reduce the costs of repair once flooded. “There is a gap between public and policymakers’ perceptions over who should take responsibility,” it says.

However there is no intention to introduce a so-called “three strikes and you’re out” rule, which would limit access to Flood Re for households that do not invest in flood prevention measures. “It is not on the table,” said Mr McCafferty. “We have no intention and no power to decline business.”

However, there are already warnings that the risks facing Flood Re are growing. In a report this week, academics from the London School of Economics and the University of Oxford warned that the benefits of preventive measures could be outweighed by the impact of climate change and continued building in high risk areas.